A Test of Confidence Enhanced Performance: Evidence from US College Debaters
We test the theory put forth by Compte and Postlewaite (2004) that overconfidence might persist because it is welfare improving. They argue that because confidence enhances performance, some overconfidence is optimal in spite of its negative effect on decision-making. One implication of their model is that while an agent’s bias (first moment of prediction error) may not change as she gains experience in an activity, her predictive accuracy (second moment of prediction error) should improve. We test this implication by comparing predictions of success by university debaters with outcomes in debate rounds and evaluating how the first and second moments of their prediction errors change with experience. As predicted by the theory, we find that while debaters remain overconfident in spite of experience, they become more accurate in their predictions. These findings support the view that overconfidence may persist because it is welfare improving.
|Date of creation:||Aug 2007|
|Date of revision:|
|Contact details of provider:|| Postal: 366 Galvez Street, Stanford, California 94305-6015|
Phone: (650) 725-1874
Fax: (650) 723-8611
Web page: http://siepr.stanford.edu
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Ulrike Malmendier & Geoffrey Tate, 2005.
"CEO Overconfidence and Corporate Investment,"
Journal of Finance,
American Finance Association, vol. 60(6), pages 2661-2700, December.
- Muriel Niederle & Lise Vesterlund, 2005.
"Do Women Shy Away From Competition? Do Men Compete Too Much?,"
NBER Working Papers
11474, National Bureau of Economic Research, Inc.
- Muriel Niederle & Lise Vesterlund, 2007. "Do Women Shy Away From Competition? Do Men Compete Too Much?," The Quarterly Journal of Economics, Oxford University Press, vol. 122(3), pages 1067-1101.
- Muriel Niederle & Lise Vesterlund, 2005. "Do Women Shy Away from Competition? Do Men Compete too Much?," Discussion Papers 04-030, Stanford Institute for Economic Policy Research.
- Malmendier, Ulrike M. & Tate, Geoffrey, 2003.
"Who Makes Acquisitions? CEO Overconfidence and the Market's Reaction,"
1798, Stanford University, Graduate School of Business.
- Malmendier, Ulrike & Tate, Geoffrey, 2008. "Who makes acquisitions? CEO overconfidence and the market's reaction," Journal of Financial Economics, Elsevier, vol. 89(1), pages 20-43, July.
- Ulrike Malmendier & Geoffrey Tate, 2004. "Who Makes Acquisitions? CEO Overconfidence and the Market's Reaction," NBER Working Papers 10813, National Bureau of Economic Research, Inc.
- Olivier Compte & Andrew Postlewaite, 2001.
PIER Working Paper Archive
04-023, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 01 May 2003.
- Luís Santos-Pinto & Joel Sobel, 2005. "A Model of Positive Self-Image in Subjective Assessments," American Economic Review, American Economic Association, vol. 95(5), pages 1386-1402, December.
- Cade Massey & Richard Thaler, 2005. "Overconfidence vs. Market Efficiency in the National Football League," NBER Working Papers 11270, National Bureau of Economic Research, Inc.
When requesting a correction, please mention this item's handle: RePEc:sip:dpaper:06-042. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Anne Shor)
If references are entirely missing, you can add them using this form.